EU-China summit cut to one day as trade deficit hits €400 billion

The European Union's flagship summit with China has been stripped down to a single day in Beijing after President Xi Jinping declined to travel to Brussels, a diplomatic downgrade that sets the tone for what officials in both capitals acknowledge will be a difficult meeting. Ursula von der Leyen, president of the European Commission, and Antonio Costa, president of the European Council, will meet Xi on Thursday to mark the 50th anniversary of diplomatic relations. The symbolism is not lost on anyone: a golden anniversary celebrated in a compressed format, moved to the host's capital at the host's insistence.

A deficit that shapes the conversation

The €400 billion trade deficit, roughly $467 billion at current rates, is the structural fact underlying every other grievance. European producers face restricted access to the Chinese market while Chinese industrial policy channels vast subsidies, preferential regulations and guaranteed government contracts to domestic champions. The result, in the Commission's view, is massive overcapacity that finds its outlet in European markets. Electric vehicles have become the flashpoint. The EU has imposed tariffs of up to 45% on Chinese EVs after an anti-subsidy investigation concluded that the playing field was anything but level.

China's counter-proposal, minimum price commitments instead of tariffs, has gone nowhere. In April the Commission created an Import Surveillance Task Force to monitor surges that could trigger safeguard duties. Its first monthly reading showed Chinese exports to the EU up 8.2% year on year in April 2025, a spike officials attribute to Chinese exporters diverting volume from the United States after Washington raised its own barriers. The task force is a new instrument, but the pattern is familiar: Europe absorbs the overflow when other major markets close.

Rare earths: the 98% dependency

If EVs are the visible conflict, rare earths are the strategic one. The European Commission calculates that the EU relies on China for 98% of its rare earth supply, including the separated oxides and the permanent magnets that go into wind turbines, electric motors, semiconductors and medical imaging equipment. When Beijing introduced export curbs last year, formally a licensing regime, effectively a chokehold, the value of shipments to the EU collapsed by 84% in the first five months of 2025, to $15.1 million (€12.9 million) according to Chinese customs data. Production lines in Europe stopped waiting for licences that did not arrive.

At the G7 summit in Canada in June, von der Leyen accused China of "coercion" and "blackmail", arguing that no single country should control 80-90% of the market for essential raw materials and downstream products. Beijing rejected the charge and suggested the EU's "mindset" needed rebalancing. Maros Sefcovic, the trade commissioner, negotiated a "green channel" for some EU manufacturers in June, but companies on the ground report that approvals remain too slow to prevent supply chain disruptions. The gap between diplomatic language and operational reality is where the leverage lies.

Sanctions cross a new threshold

The EU's 18th sanctions package against Russia, adopted last week, marked a first: two Chinese regional banks were designated for allegedly providing cryptocurrency services that helped Moscow evade financial restrictions. Chinese companies were also listed for supplying dual-use goods, civilian in name, military in application. Beijing threatened countermeasures and denounced the designations as based on "trumped-up charges". Andrew Small of the German Marshall Fund argues this is the pressure point that actually concentrates minds in Beijing: "Financial sanctions, targeting banks, these are the things that worry them."

The Ukraine war remains a structural irritant. China's claimed neutrality is viewed in Brussels as tacit support for Moscow, not least because Chinese machine tools, microelectronics and dual-use components keep appearing in Russian weaponry recovered on the battlefield. The bank designations signal a willingness to use financial plumbing as a weapon, something the EU has historically been reluctant to do against a major economic partner. Whether that willingness survives the first Chinese retaliation is the test.

China's calculation: time on its side

Some European voices see opportunity in the disruption of transatlantic relations under a second Trump administration. The argument: China needs Europe more than ever as a market and a technology partner, and can be pushed to concede. Alicja Bachulska of the European Council on Foreign Relations dismisses this as naive. "China has won the first round of the trade war with the US, and there is a strong feeling in Beijing that time is on their side," she says. Xi's declared pivot to "high-quality development", prioritising advanced technology, domestic demand, security and environment over sheer volume, is not a defensive crouch. It is a strategy that has already delivered leads in 6G communications, supercomputing and EV production at scale.

The European side, by contrast, is fragmented. The Ukraine war, the transatlantic trade spat, energy security, enlargement, migration, China competes for bandwidth in a Commission and Council that are permanently firefighting. "There's a tendency to sideline China-related issues in Europe because we just have so many things on our plates," Bachulska says. "China seems just to be a geographically distant challenge ... but many of the impacts of Chinese policies are going to be felt in Europe very soon."

Tools exist; political will is the variable

The EU has built a formidable-looking toolkit: the Anti-Coercion Instrument (ACI) to counter economic pressure, the Foreign Subsidies Regulation to address distortive state backing, the Import Surveillance Task Force, and the tariff machinery that produced the EV duties. What it has not consistently shown is the willingness to use them at speed and scale. The ACI, for instance, has never been triggered. The rare earth green channel exists on paper but not in practice. The EV tariffs took years to negotiate and apply.

"We need to push this message that Europe will be assertive and we have tools, such as the Anti-Coercion Instrument, if push comes to shove," Bachulska says. "But they require the political will to be used." That will is not a single decision but a sustained posture across 27 member states with divergent exposures. Germany's carmakers have deep investments in China; France's nuclear and aerospace sectors have their own dependencies; the newer member states in central Europe are wary of any precedent that could be turned on them.

What the summit can and cannot achieve

Mario Esteban of the Elcano Royal Institute describes the relationship as deadlocked. "One side is hoping the other will remove some of the obstacles in place for the past 18 months," he says. "This summit is not about a deeper engagement between the EU and China, but just trying to remove some of these barriers." The obstacles he refers to include the rare earth licensing regime, the market access barriers that underlie the €400 billion deficit, and the sanctions designations that Beijing wants reversed. None of these are amenable to a one-day leaders' meeting.